T-Bonds rallied again strongly yesterday. As this means that the yields are falling the cost-sensitive Nasdaq index attracted investor money. Now the tech-heavy index has rallied on four days out of the last five. The idea of lower borrowing costs excited the DJIA bulls also and helped the index to trend higher, even though the gain was smaller than in Nasdaq 100. USD Index kept on ranging and didn’t find a clear direction. Another market that didn’t quite know what to do was USOIL which created an inside bar (a candle with a lower high and a higher low than the previous daily candle). Therefore, USOIL technically is still in a downtrend. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The US manufacturing PMI came in well below expectations (52.4, 56 expected) and significantly lower than the previous reading (57.0). This suggests inflation might be showing signs of slowdown but then the question rises whether investors should be worried about future growth. Powell said in his testimony yesterday that the labour market is unsustainably hot and that the Fed is committed to fighting inflation unconditionally. He also said that it’s difficult to fight inflation without impacting the labour market. Given the tower PMI numbers together with the above statements from the head of the Federal Reserve, it should be no surprise if investors start to price in lower growth.
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EURUSD – After the weak PMIs pushed EURUSD to rising trendline support at 1.0490 the market started to attract buyers again. Now EURUSD is trending higher in the 4h timeframe and stays bullish above the channel low (currently at 1.0513. The nearest S&R levels to focus on in today’s trading are 1.0482, 1.0513, 1.0584 and 1.0605.
Gold – We saw some wild swings in gold yesterday and as a result, the market has created a sizeable trading range between 1847.85 and 1823. The lower end of the range has been, however, violated already and the failure to stay above the bear channel high is a bearish indication. Therefore it wouldn’t be a surprise if the market continued to trade lower. In order to negate these bearish indications, the market would need to move above the 1826.50 level with some dedication. The nearest S&R levels to focus on in today’s trading are 1813.48, 1821.55, 1826.50 and 1839.54.
GBPNZD – Yesterday’s analysis for GBPNZD is still valid. I said the day before yesterday that the big picture in this market is still bullish above 1.9244 and that we therefore should keep this market on our watchlist. The market has now created a series of lower highs below the 1.9620 level suggesting we’ll see a correction lower. The key support levels above the 1.9244 low are 1.9326 and 1.9407.
USOIL sold off from the 106.19 resistance level I talked about in yesterday’s analysis. This gave the readers of this report an opportunity to consider entering into short trades at very favorable levels. Now the market is trading somewhat lower and there’s still no break above the bear channel high so USOIL remains in a downtrend. At the same time, please remember that USOIL is fairly oversold and this is why we need to be prepared for the possibility of the downtrend reversing soon. A break above the bear channel high would be the first indication that something’s changing in the market psychology. The nearest S&R levels to focus on in today’s trading are 101.14 and 106.19.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.75% in June and indicated that there will steady rate hikes until the end of the year.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has been rising strongly over the last two weeks as investors sell their bond holdings.|
|Employment||The May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%.|
|Inflation||The US annual inflation growth for May accelerated to 8.6%. This was the highest reading since 1981. Analyst consensus had expected the yearly rate to be 8.3%. The prices for energy (+34.6%) and food (+10.1%) made record increases. For food, this was the first increase of 10% or more since March 1981.|
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The Next Main Risk Events
- EUR – German IFO Business Climate
- AUD – RBA Gov Lowe’s Speech
- USD – Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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